11 Jul 2013
Bernanke strikes dovish tone, highly accomodative policy still needed
FXstreet.com (Barcelona) - The first impression one has after hearing the Federal Reserve Chief Ben Bernake Q&A session, is that his tone turned surprisingly dovish, as he reassured the market that highly accomodative monetary policy is still needed for the foreseeable future.
Bernanke showed concerns about "highly-levered risk taking" positions. However, Bernanke pointed that clearing up any misunderstanding about the QE timeline may have averted confusion and more volatility. Bernanke added that "if we had not mentioned taper, we might have seen more risk taking, more divergence between market expectations and ours."
Bernanke added that the Fed plan for asset purchases was close to what market expected. Another relevant line was about the emphasis that highly accomodative policy is still needed for the foreseeable future, with Bernanke admitting that inflation, jobs signal more Fed stimulus is needed, which is a pretty dovish remark.
On rate hikes, which still sounds illusive to even think about, Bernanke said it will be revised only "some time after" unemployment hits 6.5% for the first rate hike. On the unemployment rate, Bernanke said probably understates the labour market weakness. On the fiscal front, Bernake highlighted the fact that is "too early" to make assumptions that the U.S. "weathered fiscal restraint." Bernanke went on to say Fed is missing on both key elements of its dual mandate, which include inflation too low and unemployment too high. Bernanke also said forward guidance might not be needed once the economy is back to normal conditions.
Bernanke showed concerns about "highly-levered risk taking" positions. However, Bernanke pointed that clearing up any misunderstanding about the QE timeline may have averted confusion and more volatility. Bernanke added that "if we had not mentioned taper, we might have seen more risk taking, more divergence between market expectations and ours."
Bernanke added that the Fed plan for asset purchases was close to what market expected. Another relevant line was about the emphasis that highly accomodative policy is still needed for the foreseeable future, with Bernanke admitting that inflation, jobs signal more Fed stimulus is needed, which is a pretty dovish remark.
On rate hikes, which still sounds illusive to even think about, Bernanke said it will be revised only "some time after" unemployment hits 6.5% for the first rate hike. On the unemployment rate, Bernanke said probably understates the labour market weakness. On the fiscal front, Bernake highlighted the fact that is "too early" to make assumptions that the U.S. "weathered fiscal restraint." Bernanke went on to say Fed is missing on both key elements of its dual mandate, which include inflation too low and unemployment too high. Bernanke also said forward guidance might not be needed once the economy is back to normal conditions.